Politics and Business

How to Get a Loan for Your Small Business

Any entrepreneur will tell you that you can never get enough funding. Therefore, you need to be business savvy and learn all the ways you can acquire additional capital. You can get small business loans from a number of traditional lenders. These loans can help your business to grow, expand to new territories, and enhance your marketing efforts.

Here are some steps that will help you to acquire a small business loan:

Understand the Different Business Loans Available

There are different types of business loans from which you can choose. The options vary depending on the loan terms, loan duration, and business needs. The small business loans available include:

Accounts receivable Financing – this credit is secured by your business’s accounts receivable (AR). Your accounts receivable line allows you to get money immediately depending on your account receivable level and interest rate. Your AR line is paid down as customers pay the accounts receivable.

Small business line of credit – under this line of credit (LOC), you can access financing from the lender, as you need. Although there will be a cap on the amount of money you can access, a line of credit helps you manage unexpected expenses and cash flows. There will be a fee for setting up your LOC but you will not be charged any interest until you draw from the line.

Working capital loans – this is a debt borrowing vehicle by companies to finance their day-to-day operations. Companies use these loans to manage revenue and expense fluctuations as well as other business problems. Some working capital loans are unsecured, but your company has to pledge collateral if it has little to no credit.

Small business loans – several banks offer attractive low-interest loans for businesses that are backed by the US SBA (Small Business Administration). The interest rates and terms of repayment are more favorable due to the SBA guarantee. However, this process is time consuming and has strict requirements for small businesses.

Research Available Lenders

More lenders than ever are willing to lend to small businesses. You can find such lenders by conducting a simple online search. They include:

Large commercial banks – these lenders are traditional and have strict underwriting criteria for borrowing money. According to the owner of smallbusinessloans.co, you need to have a good credit score to borrow from banks.

Direct online lenders – a number of online lenders give loans to small business owners through a simple online process.

Peer-to-peer lending sites – a number of websites act as intermediaries between institutional and individual lenders.

Local community banks – some community banks like to give small business loans to local businesses.

SBA-backed bank lenders – a number of lenders issue SBA-backed loans and this backing allows them to offer terms that are more attractive.

Anticipate the Lender’s Assessment

Lenders make the decision to give you a loan based on your risk profile and credit. A lender will look at the following factors before giving you a loan:

Credit score – a lender must review your credit report, score, and history of paying loans in a timely manner. Therefore, you should review your report beforehand and remove the blemishes.

Assets – lenders will look at your business assets to see if they can come after some of them if you default on your loan.

Outstanding loans – lenders will look at your outstanding debts and loans to see whether your cash flow is enough to repay outstanding loans and obligations.

Investors – lenders favor companies with venture capital investors or angel investors. If possible, you should persuade some people to invest in your business.

Time in business – lenders also favor business owners who have been in business for longer periods.

Financial statements – the lenders will analyze your financial statements before giving you a loan; ensure that they are thorough and correct.